Emerging markets are high risk and high reward. In my work as an attorney representing Western companies in emerging markets, I have concluded there are four essential elements to emerging market success: a good partner, an open mind, active participation, and extreme patience. I have seen enough essential similarities between such diverse countries as Russia, Korea (ten years ago when it was still an emerging market country), Vietnam, and even
Gambia and Papua New Guinea, to believe certain core generalizations hold true for all or nearly all emerging market nations. Just as a good concept, a strong market, and good execution are necessary in all countries, so too are these four simple principles
keys to success in emerging market nations.
PRINCIPLE ONE: A Good Partner is
sine qua non of Success.
The quality of
local partner is
indispensable element for emerging market success. So where do you begin?
Start with due diligence. Before doing business with anyone, you must first determine what you need from your partner in
particular country in which you will be conducting business. In my experience, foreign companies need a local partner who is effective, cooperative, and (most important of all) trustworthy.
Emerging market countries almost always have less-than-fully-formed legal systems. Their laws are oftentimes slanted towards
government and away from free markets. Their courts are slow and often corrupt. Form takes precedence over substance in ways completely unfamiliar to Westerners. One small technical miscue on your part might eliminate your right to sue your partner for having stolen all of your money. It might even lead to you and your company being kicked out of
country, while your assets remain.
Of course you should do your best to avoid technical miscues, but
better strategy is to pick your partner well.
So what should you look for in a local partner? Political connections? Yes and no:
Yes, because you probably will need someone with sufficient dexterity to maneuver around often-suffocating business laws and a bureaucracy that may try to cut in on your business at every turn. No, if you think that is all you will need. Just as in
West,
politically connected are usually more a "government type" than a business person. Partnering with someone in an emerging country with whom you would never consider partnering back home is a mistake. Political clout in emerging market countries is often more effective for avoiding legal responsibility for something like a debt than it is in generating business revenues. I have seen countless instances where a foreign company partners with someone because he "is tight with
governor," only to see
business crushed by
new governor as part of his house cleaning. The best partner is politically connected only to
extent necessary for business success.
Your partner's character and reputation are your protection in countries where
court system is not. Do not partner in any sense of that term without having conducted thorough due diligence.
Get to know your potential partner. If he is legitimate and wants to work with you for
long term, he will expect you to want to get to know him better and think nothing of your wanting multiple meetings before signing any deal.
Use every source you have to find out about your potential partner. Check his references, particularly those of other foreign firms with whom he has worked. Hire a local lawyer or investigator to confirm he and his various businesses are in good standing with all creditors and taxing authorities. If your potential partner is in Vladivostok, Russia or Qingdao, China, hiring a lawyer in Moscow or Shanghai will probably not be good enough. Find someone you can trust with contacts where your potential partner conducts business.